Question

.The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.

Assets

Cash and short-term investments

$ 30,000

Accounts receivable (net)

20,000

Inventory

15,000

Property, plant, and equipment

185,000

Total assets

$250,000

Liabilities and Stockholders’ Equity

Current liabilities

$ 45,000

Long-term liabilities

70,000

Stockholders’ equity—Common

135,000

Total liabilities and stockholders’ equity

$250,000

Income Statement

Sales

$85,000

Cost of goods sold

45,000

Gross margin

$40,000

Operating expenses

(15,000)

Interest expense

(5,000)

Net income

$20,000

Number of shares of common stock outstanding

6,000

Market price of common stock

$20

Total dividends paid

$9,000

Cash provided by operations

$30,000

What is the dividend yield for Diane Company?

a.

13.3%

b.

1.3%

c.

7.5%

d.

0.75%

Answer 1

Answer:

C. 7.5%

Explanation:

We know,

Dividend yield = (Annual dividends per share ÷ Market price of common stock) × 100

Given,

Market price of common stock = $20

Annual dividends per share = Total dividends paid ÷ Number of shares of common stock outstanding (assuming there is no preferred stock)

Annual dividends per share = $9,000 ÷  6,000 shares = $1.5 per share

Therefore,

Dividend yield = ($1.5 per share ÷ $20) × 100

Dividend yield = 0.075 × 100

Hence, Dividend yield = 7.5%

Therefore, option C is the answer.